How to assess the value of a responsible investment product

Posted 30 Mar 2015

Evaluating the utility of a responsible investment product (as compared to a traditional investment product) might help you decide which way to go next time you’re ready to invest. The process may help you make some other tricky decisions too.

A while back, I started putting higher-grade gasoline in our family hybrid car and was pleased by the greater kilometer per litre ratio we were getting. An acquaintance asked if we’d worked out whether the premium we paid for the gas was inferior to the cost we’d have paid in additional low-grade gas. (He added that engines like ours don’t require higher-grade gas, and their life-span will not be significantly extended). I honestly didn’t care whether I was really ‘getting a deal’ because other greater needs of mine where being met – my desire to be consistent with my values and my other behaviours.

When it comes to financial products, there is no doubt that you are looking for financial gain, but what is the full utility value you seek from a mutual fund or other financial product?

How does a responsible investment product better help you to prepare for your retirement, the purchase of your first home or the money you’ll be able to leave to your children?

To fully capture whether a responsible investment product can better help you prepare for your retirement, you (and your financial adviser if you have one) need to understand your own needs as well as the solutions offered by the different product offerings. (Your tolerance for risk also needs to be considered, but given that there are RI solutions for all risk profiles, I’m not going to address that in this blog post).

Let’s start with your own needs. Of course you need your investments to make you money, but there’s more to it than that. A recent survey by Riedel Strategy, a social science-based research firm, yielded some fascinating insights into how money and investments fit into a person’s overall financial life. The researcher was surprised to find that a financial life isn’t actually about money, but rather about “…people struggling to be the best versions of themselves, to live a life they can feel proud to have led.“* Does this ring at all true with you?

Do you sometimes find that your ideal self and your desires for more money are in conflict?

Sometimes pursuing that ideal self involves making a hard decision to make less money. More and more respected research demonstrates that responsible investment does not incur a financial trade-off, but is responsible investment, then, otherwise able to bring you closer to your ideal life? To be able to answer this question, you need to properly understand socially responsible investment solutions.

If you have at least some idea of your ideal self, the information and tools on Ethiquette should help you to assess whether different responsible investment products are able to bring you closer to your ideal self. That, combined with the financial value, will be the value of responsible investment products to you.